Background to EPLA

The global patent industry

The global patent industry is a lucrative set of businesses that makes money from researching, writing, granting, licensing, and litigating patents. The patent industry in Europe consists of:

The national patent offices.

The European Patent Office.

Independent patent experts and attornies.

Patent lawyers who manage intellectual property issues for major corporations.

Patent-holding specialist firms (also called 'patent trolls').

As any business, the patent industry is driven by profit. The patent industry has a monopoly over the patent business. For example, there are no private patent examiners, so patent examination costs are very high, and the patent examination process is inefficient. The bigger the monopoly, the higher the costs: the EPO charges several times more for patent examination than a typical national patent office.

The software patent directive 'failure'

In 2005 the FFII helped Parliament beat the Software Patent Directive. The patent industry is still traumatised by what it describes as the "the largest-ever lobbying campaign in the history of the parliament". It has been searching for a new route to software patents, and has explored several alternatives:

The European Patent Litigation Agreement

The European Patent Litigation Agreement (EPLA) is a draft proposal for a new European patent litigation system that is a 'solution to the problems' of the current European patent system, which has suffered in three main areas over the last decades:

The rise of the EU has created a new model for collaboration between countries, and this new model does not fit well with the old model of the European Patent Convention (EPC), an agreement between countries including non-EU states, and which spawned the European Patent Organisation (EPOrg) and European Patent Office (EPO).

Under pressure from the patent industry, the patent system has lowered its standards so that more patents could be granted, especially in areas such as software which were not viewed as patentable when the EPC was signed, being already well-protected by copyright.

Patents are still arbitrated in national high-courts, which have kept a view closer in line with the EPC's exclusions of patentable subject matter. This is particularly important because it means that in the field of software, national courts often reject patents which are granted by the EPO and upheld by the EPO's Technical Boards of Appeal (TBA).

These three problems have created significant stress within the patent system: the patent industry gets more powerful, but finds it harder to exercise that power than, for example, in the USA, which has allowed an inceasingly litigous and unfettered patent industry to expand, especially in biotechnology, pharmaceuticals, and information technology (software).

The EPLA proposes that:

National courts lose their power to decide over patent issues.

A new European patent court would be created, with judges appointed by the EPOrg and potentially coming from EPO staff. This includes current Technical Boards of Appeal (TBA) judges who have been criticised as the primary source of giving ground on patentable subject matter.

To give this effect in EU member states, the EU would become a signatory to the EPC.

EPLA's architecture

The countries that have signed the EPC agree to set-up a new international organisation called the European Patent Judiciary (EPJ).

The EPJ consists of a European patent court (multiple courts of first instance, and a court of appeal), and an Administrative Council.

The Administrative Council is composed of representatives of the EPC countries. That is, the same patent officials who run the EPO.

The Administrative Council runs the Court, appoints judges (for fixed terms, not life), and manages budgets.

The European Patent Court would take over jurisdiction from national courts over a period of years.

EPLA is mainly designed to make life easier for large patent owners who want to litigate. It's marketed as being cheaper and more effective than the current system of national courts. In fact EPLA is only cheaper for large firms that want to litigate in many national courts. In recent price comparisons, the Commission has compared EPLA with the UK system, the most costly in Europe.

The US Federal Circuit Experiment

The USA has experimented with something like EPLA. In 1982, the US Congress put all patent litigation into a single court called the Court of Appeals of the Federal Circuit (CAFC). This is how the US CCIA (Computer & Communications Industry Association) described the effects of CAFC:

The Federal Circuit has:

Lowered the threshold standard of patentability

Encouraged extortionate demands and settlements

Eliminated virtually all limits on patentable subject matter

Endowed issued patents with an unjustifiably high presumption of validity

Regarding EPLA, the CCIA said:

[CAFC] is not only a questionable model for Europe to follow but the proposed European system would be far more insular in the following respects:

No legislative oversight. In the United States, Congress is directly empowered to change patent law and patent institutions. Neither national legislatures nor the European Parliament would have this power.

No judicial oversight. In the United States, the Supreme Court can review Federal Circuit decisions, and it has granted review frequently in the last two years as concerns about the malfunctioning of the patent system have grown.

No independent judiciary. EPJ judges would be appointed by the EPO Administrative Council for limited terms, whereas Federal Circuit judges are appointed by the President for life.

Wholly specialized. EPJ would be exclusively focused on patents. Although the Federal Circuit has made its mark on patent policy, it has other responsibilities as well.

The CCIA concludes that:

[CAFC] has made patents more potent, easy to get, easy to assert, and available for a virtually unlimited range of subject matter. As shown in the 2002 joint Department of Justice/Federal Trade Commission (FTC) hearings, this has led to over-patenting, portfolio racing, opportunism, extortionate settlements, and failure of the public disclosure function. As the final FTC report, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, makes clear, the ill effects have been borne disproportionately by the ICT sector.

When the EU has joined the EPLA, national courts could refer EPC questions to the ECJ. The ECJ interpretation would be immediately binding on all member states, and could not be overruled by an EU directive.

So, the question is how to "guide the ECJ" to make the proper decision.

The key is the Implementing Regulations of the EPC, which would bind the ECJ. Tilmann says, "the means of changing the Implementing Regulations must appear to users and practitioners of the European Patent System, still shocked by the debate around the Biotech- and Computersoftware-directives, the securest means."

The Implementing Regulations can be changed by the Administrative Council of the EPO (Art. 33 EPC). This body consists only of members of the patent system, usually from national patent offices.

From December 2007, when the new EPC 2000 treaty comes into effect, the Administrative Council would be able to change most of the EPC including Article 52, which today still excludes software from patentability.

Impact of EPLA

Direct effects

The European Parliament would have no oversight. Thus EU citizens would be subject to a legal regime that allows no input from democratic processes.

EPJ judges would be appointed by the same people who run the EPO, a serious conflict of interests.

EPJ judges would be appointed for fixed terms, so they would be forced to follow EPO practice.

The EPJ would be financed by patent litigation, creating a second international organisation that makes money from patents.

The European Court of Justice would have to implement the text of the EPC, which can be modified by the EPO Administrative Council.

Very simply, the (same people who run the) EPO - which already grants software patents on a huge scale - would get full judicial control over these patents. Mark Webbink, Deputy General Counsel for Red Hat, notes, "EPLA's supporters are experts in obtaining patents, not innovation."

Software patents

Indirectly, EPLA would legalise software patents almost immediately, as these are allowed by the EPO, and mostly rejected by national courts. From the point of view of the software industry, EPLA is very clearly a tool to get software patents allowed in the EU, after these were rejected by the EU Parliament in 2005.

EPLA would allow the patent industry to introduce software patents by at least three separate routes:

Impose its own interpretation of the European Patent Convention by appointing judges who would enforce the EPO's practice of interpreting article 52 of the EPC to mean software and business methods are fully patentable.

Modify the EPC Implementing Regulations to force the European Court of Justice to adopt the EPO's practice. This requires a 75% majority vote of EPC signatories.

Modify the EPC itself, removing the constraints of article 52. With the EPC2000 treaty, which comes into force in December 2007, the EPO can 'fix' the EPC. This would require a unanimous vote of EPC signatories.

In all these cases, one of the key levers is the EU's becoming a contracting party (signatory) of the patent convention and/or EPLA.

Other effects

To make patent litigation, in both enforcement and defense, much more expensive.

To move the patent system outside of EU control, and make it hard to reverse that move.

However, EPLA would also lower the bar on patent quality in all areas as the EPO's TBAs have systematically lowered the bar on inventive step, on prior art, on industrial application, and on subject matter.

Judicial Independence

EPLA judges would be appointed and reappointed for fixed terms by the the EPO's Administrative Council. Fixed-term judges cannot be considered fully independent, which is why most countries appoint senior judges for life. Moreover, since the EPLA court judges can at the same time sit on the EPO's TBAs, the executive (EPO) will be partially in change of the judicial (EPLA court) functions, thus removing the "trias politica", the principles that would ensure separate and independent powers and areas of responsibility - in essence the normal checks and balances of modern democracy.

The EPLA Campaign

The pro-EPLA propaganda

A major part of the EPLA preparation was the creation of a solid propaganda piece, a nice mix of truth and lies that leads the unaware reader to believe that EPLA is indeed a cure for old age, the end of oil, and a bad back. We read the propaganda piece over and over again, in reports, studies, conferences.

It goes like this:

Europe is falling behind in economic performance

Europe needs to be more innovative

Innovation depends on a strong intellectual property regime

This means we need stronger and more reliable patent system

Litigation in Europe's current patent system is too expensive

The Community Patent is the ultimate solution

EPLA plus the London Protocol are a good interim solution

This explanation comes back in many places. To debunk it, we can note that:

The US is actually falling behind in economic performance (from 1st to 6th place last year, according to the OECD)

Innovation depends on many things, such as taxation, market size, and fair competition

Intellectual property is many things, not just patents

The main problem with patents is not litigation, but bad patents

Yes, an EU patent system is a desirable goal

EPLA would block, not promote, an EU patent system

How much does it cost to buy a law like EPLA?

No-one knows how much a law like EPLA really costs to produce and sell. But we have some clues, and a very rough estimate of the total cost of all those breakfast meetings, conferences, studies, and reports. Democracy is, it seems, for sale.

The pro-EPLA propaganda

A major part of the EPLA preparation was the creation of a solid propaganda piece, a nice mix of truth and lies that leads the unaware reader to believe that EPLA is indeed a cure for old age, the end of oil, and a bad back. We read the propaganda piece over and over again, in reports, studies, conferences.

It goes like this:

Europe is falling behind in economic performance

Europe needs to be more innovative

Innovation depends on a strong intellectual property regime

This means we need stronger and more reliable patent system

Litigation in Europe's current patent system is too expensive

The Community Patent is the ultimate solution

EPLA plus the London Protocol are a good interim solution

This explanation comes back in many places. To debunk it, we can note that:

The US is actually falling behind in economic performance (from 1st to 6th place last year, according to the OECD)

Innovation depends on many things, such as taxation, market size, and fair competition

Intellectual property is many things, not just patents

The main problem with patents is not litigation, but bad patents

Yes, an EU patent system is a desirable goal

EPLA would block, not promote, an EU patent system

How much did it cost to prepare EPLA?

Something as dangerous and controversial as EPLA cannot be introduced offhandedly, especially when people are starting to question the sanity of the CAFC system. Someone is going to ask difficult questions. So, the EPO, working together with friends in the patent industry, has conducted a huge marketing campaign.

Selling EPLA is a massive and expensive project. From the outside, we can only guess at the size of the budgets involved, but they are significant. We estimate that each Euro we spend on activism is matched by a hundred Euro of commercial lobbying. The FFII spent something like Euro 1m in contributed time to understand EPLA and prepare counter-proposals. So we can estimate that about Euro 100m was spent on preparing it.

Does that sound a lot? A top lawyer or lobbyist earns Euro 1m per year.

In fact our Euro 100m estimate is possibly too low. It might be Euro 250m, or more. That does not really matter. Software patents represent a large, even majority slice of the Euro 6bn a year earned by the patent industry. The bill for the EPLA project is a small investment. And the ticket was split between the software monopolists and the EPO, and a large part was provided by the tax payer. Great value for money!

But what was the money spent on? This are the visible aspects:

Documentary and legal support. EPLA is a complex design that depends on some very delicate manoeuvers, such as the EU becoming a signatory of the European Patent Convention. So the EPO has spent a lot of money on preparing the legal ground work and producing web sites, reports, studies, and other materials. Most of this work was done before 2004.

Media events like breakfast meetings, conferences, workshops. Speakers are brought from across the world, they are lodged, fed, and assisted.

Public relations. This means paying professionals to get the right stories in the news.

Public opinion 'research'. The outcome of such "let's ask the people" programmes is always the same. The people's opinion is generally discounted and ignored, while special interests get a broad canvas on which to paint their dogma.

Direct lobbying. This means paying professionals to attend meetings, convince MEPs, speak in workshops, etc. Lobbyists are expensive and the EPO has teams in every major capital, but especially Brussels and Munich.

The European Patent Organisation

The European Patent Organisation is an intergovernmental organisation that was set up on 7 October 1977 on the basis of the European Patent Convention (EPC) signed in Munich in 1973.

The Organisation currently has 31 member states, comprising all the member states of the European Union (except Malta) together with Bulgaria, Iceland, Liechtenstein, Monaco, Romania, Switzerland and Turkey.

The two organs of the Organisation are: a) the European Patent Office, located in Munich with a branch in The Hague and sub-offices in Berlin and Vienna, and b) the Administrative Council.

In fact there is both an 'organisation' and an 'office', but for most purposes "EPO" covers the whole quite accurately.

The EPO is a treaty organisation like the World Postal Union, or the United Nations. It has 6,000 employees, many of whom have diplomatic immunity and don't pay any taxes. It earns more than Euro 1.25bn each year from patent examinations. It occupies buildings the size of the European Parliament. It has permanent lobbying offices in Brussels, Munich, and all other European capitals. It is not an EU institution. Local law stops at the EPO gates. It is run by officials who come from the different national patent offices. It is a bureacrat's dream. Work hard in a national patent office, follow the party line, say the right things, and you too could get a slice of the EPO cake.

The EPO is effectively the European head quarters and main organ of the global patent industry. For every Euro earned from patent examination, the patent industry earns another 5-6 Euro from filings, translations, and above all, litigations. And this ignores the profits to be made from licensing patents, which run into the hundreds of billions, even trillions of Euro.

Reaction to EPLA

The European Patent Conference

FFII President and EUPACO Chairman Pieter Hintjens says: "the patent system, both globally, and in Europe, is under serious stress. The unrestricted expansion of patentability into non-traditional areas together with the rising flood of poorly granted 'soft' patents in biotech, pharma, and software have throttled innovation. In Europe the European Patent Office earns over Euro 1bn a year but still cannot conduct proper examinations. All solutions seem to be promoting worse patents, and worse patent practice. Something must change."

"The EPO and Commission have spent much of 2006 building up a campaign to promote a new non-EU patent court, under the so-called EPLA plan. This is being sold as an 'interim' solution on the way to a real community patent, but the Commission has failed to provide a roadmap for such an evolution, and the FFII believes EPLA would be a long-term consolidation of today's broken system."

"With so much power concentrated in one place, and without proper democratic oversight, patent practice will get much worse," explains Hintjens. "There are important and urgent fixes to be made in the patent system, but the Commission and EPO are blithely ignoring these issues. So, we have launched the European Patent Conference, a gathering of the wisest economists, lawyers, and industry experts. We will look at the patent system, we will build proposals for change, and we will work to get those changes implemented."